Prediction markets raise questions about Missouri sports betting tax revenue
COLUMBIA, Mo. (KMIZ)
With football season underway, Missouri is poised to collect some of its highest taxable revenue from sports betting.
But the rise of prediction markets could divert some of that wagering activity — and the tax revenue it generates — away from the state.
Missouri launched legal sports wagering in December 2025 after voters approved Amendment 2. The state taxes sports betting revenue at 10%, with proceeds supporting state programs including education. At the same time, prediction markets have rapidly expanded nationwide.
Platforms such as Kalshi and Polymarket allow users to buy and sell contracts tied to the outcome of events. Instead of placing a traditional sports bet with a sportsbook, users trade contracts that can pay a set amount depending on whether an event happens.
Dallas Short, senior news analyst at Covers.com, said the prices on prediction markets can look a lot like traditional betting odds.
“The prediction markets have to use probabilities or percentages instead of traditional American betting odds. They were using those for a while, and they are almost identical,” Short said. “So for traders in prediction markets and bettors for sportsbooks, they are almost indistinguishable sides of that percentage.”
The key legal distinction, Short said, is how the transactions are structured.
“The reason why legally, is that technically, when you trade on an event contract platform, you are trading with someone else,” Short said. “Now that other person might be a hedge fund or something, but you’re technically trading, and it’s like a stock, just like Microsoft or Coca-Cola or IBM or whatever.”
That distinction has become the center of a growing legal fight between prediction-market companies and state regulators. Short said the issue could eventually reach the U.S. Supreme Court, and one case in New Jersey did earlier this month with that state asking the high court to shutter prediction markets in its state.
“They found a workaround, a creative way of looking at a law and determining that a trade on the Chiefs game coming up is actually more akin to a stock trade than it is a sports bet,” he said.
A rapidly growing marketAccording to the Tax Policy Center, a think tank that promotes itself as nonpartisan, trading volume on prediction markets such as Polymarket and Kalshi grew from roughly $9 billion in 2024 to more than $40 billion in 2025.
The growth has made prediction markets an increasingly significant competitor to sports betting. While some states have restrictions, it is now legal in all 50 states.
In the first week of the NFL season alone, prediction markets generated roughly $3 billion in trading volume. However, Short cautioned that trading volume and sportsbook handle are not directly comparable.
“A trading volume is hard to even compare to a sports betting handle,” Short said. “It’s multitudes larger. There’s very big divides about how much you should compare trading volume to handle. It’s five-ten times bigger.”
The distinction matters because prediction-market trading volume can include transactions between buyers and sellers, while sportsbook handle generally refers to the amount wagered with a sportsbook.
Why states are watchingSportsbooks operate under state gambling laws. They generally must obtain licenses and pay taxes on gambling revenue.
Prediction markets have argued their event contracts are financial products subject to federal regulation rather than state-regulated sports wagers.
That difference could have a direct effect on state budgets if wagering moves from taxed sportsbooks to prediction markets.
According to the Tax Policy Center, New York provides one example of the potential exposure. During the state’s 2026 fiscal year, mobile sportsbooks generated approximately $2.6 billion in gross gambling revenue. With a 51% tax rate, that activity produced roughly $1.3 billion in tax collections dedicated to education, youth programs and problem-gambling services.
The Tax Policy Center examined what could happen if just 1%, 5% or 10% of sportsbook activity shifted to prediction markets. It found that even relatively small shifts could mean significant losses in tax revenue for states with large sports betting markets.
Sports betting revenue is concentrated in a handful of states. The Tax Policy Center said New York accounts for roughly one-third of all state sports betting tax collections, while New York and Illinois together generate nearly half.
For Missouri, the potential impact is different. The state is just beginning to build a track record of sports betting tax collections, meaning there is less historical data to determine how much activity could shift and what that would mean for state revenue.
“States are absolutely concerned. Forty-plus state Attorneys General have filed lawsuits against these platforms and more than a dozen states have specifically taken them to court. There’s a lot of pushback from gaming regulators,” Short said. “Nevada has, not surprisingly, been a leader. New Jersey has been a leader. There are a lot of states pushing back against this.”
Sportsbooks see a different pictureWhile state regulators have raised concerns, Short said sportsbooks themselves do not necessarily view prediction markets as a direct replacement for traditional sports betting.
Some operators, including DraftKings, have launched prediction-market products of their own.
“What’s interesting is that the prediction market platforms, so the ones we can see DraftKings, which has a sportsbook and a prediction market platform, they’re saying that they’re not seeing any overlap, that it’s new customers,” Short said. “A typical sportsbook has hundreds of different player props available for that, and I can stack them in hundreds of thousands of combinations. If I wanted to do that on a prediction market, I would have to have somebody on the other side who’s willing to buy the opposite of every single one of those ten-leg parlays, which is almost imbossible.”
Parlays are important to sportsbooks because they allow bettors to combine multiple wagers into a single bet. Prediction markets generally operate differently, with contracts requiring a buyer and seller on opposite sides of a particular outcome.
Short said that difference makes it difficult to determine how much traditional sportsbook business is actually moving to prediction markets.
“We’re not seeing a tremendous dent in sportsbook betting revenue by prediction markets, but it’s hard to look at those numbers. It’s hard to compare those numbers. We don’t have the full picture of it,” Short said. “Overall, gaming regulators just do not like this. They do not like being stepped on. They don’t like circumventing their state laws. They don’t want that and they’re going after it.”
A question for state tax systemsThe Tax Policy Center said lawmakers in several states are already considering ways to address prediction markets through licensing, regulation or taxation.
According to the National Conference of State Legislatures, proposals introduced in 2026 range from licensing and regulatory requirements to measures that would explicitly tax prediction-market activity or treat certain contracts similarly to sports wagering.
The debate goes beyond whether prediction markets should be legal. It also raises the question of whether states will continue collecting revenue when people shift some of their wagering from state-regulated sportsbooks to federally regulated prediction markets.
Short said the legal uncertainty could remain for years. Lawyers he has spoken with are divided over when the Supreme Court could take up the issue, with some expecting a case as soon as 2027 and others saying it could be 2028.
“In the meantime, we are going to have dozens of court battles across the country, and we’re going to have one court rule one way and we’re going to have one court rule another, as we’ve seen. For example, in Nevada the Nevada area appellate court ruled for Nevada against the prediction markets, where the New Jersey area appellate court ruled against the state and for the prediction markets,” Short told ABC 17 News.
For states such as Missouri, the outcome could determine whether sports-related prediction contracts become another taxable form of wagering or remain outside state sports betting systems.
ABC 17 News reached out to the Missouri Gaming Commission.
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